-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MF4LALT2u4OhrggcQyU69ll2y7skajKyjk44DNMkXvQkQaz2QNWbFKHInQS6qM4Y EjkM7HJY5jqSuTkJBhSKuw== 0000950133-01-503293.txt : 20020410 0000950133-01-503293.hdr.sgml : 20020410 ACCESSION NUMBER: 0000950133-01-503293 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARBITRON INC CENTRAL INDEX KEY: 0000109758 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 520278528 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-01969 FILM NUMBER: 1790029 BUSINESS ADDRESS: STREET 1: 142 WEST 57TH STREET CITY: NEW YORK STATE: NY ZIP: 10019-3300 BUSINESS PHONE: 2128871300 MAIL ADDRESS: STREET 1: 142 WEST 57TH STREET CITY: NEW YORK STATE: N1 ZIP: 10019-3300 FORMER COMPANY: FORMER CONFORMED NAME: CERIDIAN CORP DATE OF NAME CHANGE: 19920901 FORMER COMPANY: FORMER CONFORMED NAME: COMMERCIAL CREDIT CO DATE OF NAME CHANGE: 19680910 FORMER COMPANY: FORMER CONFORMED NAME: CONTROL DATA CORP /DE/ DATE OF NAME CHANGE: 19920703 10-Q 1 w54680e10-q.htm QUARTERLY REPORT e10-q
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549


FORM 10-Q

     
[X]   Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
  For the quarterly period ended September 30, 2001

Or

     
[   ]   Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
  For the transition period from________to________

Commission file number: 1-1969

ARBITRON INC.
(Exact name of registrant as specified in its charter)

     
Delaware   52-0278528
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer Identification No.)

142 West 57th Street
New York, New York 10019

(Address of principal executive offices) (Zip Code)
(212) 887-1300
(Registrant’s telephone number, including area code)


     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [   ]

     The registrant had 29,172,196 shares of common stock, par value $0.50 per share, outstanding as of October 31, 2001.

 


 

ARBITRON INC.

INDEX

     
PART I - FINANCIAL INFORMATION   Page No.
 
                            Item 1. Financial Statements    
 
                                         Consolidated Balance Sheets — September 30, 2001 and
                                             December 31, 2000
  3
 
                                         Consolidated Statements of Income — Three months
                                             ended September 30, 2001 and 2000
  4
 
                                         Consolidated Statements of Income — Nine months
                                             ended September 30, 2001 and 2000
  5
 
                                         Consolidated Statements of Cash Flows — Nine months
                                             ended September 30, 2001 and 2000
  6
 
                                         Notes to Consolidated Financial Statements — September 30, 2001   7
 
                            Item 2. Management’s Discussion and Analysis of Financial
                                             Condition and Results of Operations
  13
 
                            Item 3. Quantitative and Qualitative Disclosure of Market Risk   20
 
PART II — OTHER INFORMATION    
 
                            Item 6. Exhibits and Reports on Form 8-K   21
 
Signature   22

2


 

ITEM 1. FINANCIAL STATEMENTS

ARBITRON INC.
Consolidated Balance Sheets
(In thousands, except per share data)

                     
        September 30,   December 31,
        2001   2000 (1)
       
 
        (unaudited)  
Assets
               
               
Current assets
       
 
Cash and cash equivalents
$ 18,600     $ 3,540  
 
Trade accounts receivable, net of allowance for doubtful accounts of $1,030 in 2001 and $1,076 in 2000
    24,564       19,017  
 
Deferred tax assets
    16,283       34,731  
 
Prepaid expenses and other current assets
    3,746       3,056  
 
   
     
 
   
Total current assets
    63,193       60,344  
 
Investments in affiliates
    7,388       10,262  
Property and equipment, net
    7,060       4,844  
Goodwill, net
    29,356       12,160  
Other intangibles, net
    3,251       1,689  
Deferred tax assets
    17,415       16,346  
Other noncurrent assets
    4,803       2,231  
 
   
     
 
   
Total assets
  $ 132,466     $ 107,876  
 
   
     
 
Liabilities and Stockholders’ Equity (Deficit)
               
               
Current liabilities
       
 
Accounts payable
  $ 3,815     $ 8,758  
 
Accrued expenses and other current liabilities
    12,099       15,543  
 
Due to owners of acquired business (Note 2)
    10,243        
 
Deferred revenue
    41,966       47,833  
 
   
     
 
   
Total current liabilities
    68,123       72,134  
Noncurrent liabilities
           
 
Long-term debt (Note 3)
    225,000        
 
Other noncurrent liabilities
    7,212       2,520  
 
   
     
 
   
Total liabilities
    300,335       74,654  
 
   
     
 
Stockholders’ equity (deficit)
           
 
Common stock, $0.50 par value, authorized 500,000 shares, issued 32,332 shares
    16,166        
 
Additional paid-in capital
    58,565        
 
Accumulated earnings (net distributions to Ceridian in excess of accumulated earnings) prior to Spin-off
    (255,318 )     33,361  
 
Retained earnings subsequent to Spin-off
    17,570        
 
Common stock held in treasury, 3,161 shares
    (1,580 )      
 
Accumulated other comprehensive loss
    (3,272 )     (139 )
 
   
     
 
   
Total stockholders’ equity (deficit)
    (167,869 )     33,222  
 
   
     
 
   
Total liabilities and stockholders’ equity (deficit)
  $ 132,466     $ 107,876  
 
   
     
 
See notes to consolidated financial statements.
           
 
(1)        Amounts derived from audited combined financial statements as of December 31, 2000.
           

3


 

ARBITRON INC.
Consolidated Statements of Income
(In thousands, except per share data)
(unaudited)

                     
        Three Months Ended
        September 30,
       
        2001   2000
       
 
Revenue
  $ 65,633     $ 58,395  
       
Costs and expenses
           
  Cost of revenue
    19,668       16,219  
 
Selling, general and administrative
    12,460       11,214  
 
Research and development
    5,916       3,807  
 
   
     
 
   
Total costs and expenses
    38,044       31,240  
 
   
     
 
Operating income
    27,589       27,155  
           
 
Equity in net loss of affiliate
    (1,393 )     (1,729 )
 
   
     
 
Income before interest and income tax expense
    26,196       25,426  
 
Interest income
    240        
 
Interest expense
    (5,188 )      
 
   
     
 
Income before income tax expense
    21,248       25,426  
 
Income tax expense
    8,392       10,043  
 
   
     
 
Net income
  $ 12,856     $ 15,383  
 
   
     
 
Net income and pro forma net income per weighted average common share (Note 6)
       
   
Basic
$ 0.44     $ 0.53  
   
Diluted
  $ 0.43     $ 0.52  
Common and pro forma weighted average common shares used in calculations
           
   
Basic
  29,162       29,076  
   
Potentially dilutive securities
    421       430  
 
   
     
 
   
Diluted
    29,583       29,506  
 
See notes to consolidated financial statements.
       

4


 

ARBITRON INC.
Consolidated Statements of Income
(In thousands, except per share data)
(unaudited)

                     
        Nine Months Ended
        September 30,
       
        2001   2000
       
 
Revenue
  $ 176,087     $ 159,593  
       
Costs and expenses
           
 
Cost of revenue
    58,352       53,286  
 
Selling, general and administrative
    35,625       33,190  
 
Research and development
    16,250       10,430  
 
   
     
 
   
Total costs and expenses
    110,227       96,906  
 
   
     
 
Operating income
    65,860       62,687  
           
 
Equity in net income of affiliate
    426       273  
 
   
     
 
Income before interest and income tax expense
    66,286       62,960  
 
Interest income
    613        
 
Interest expense
    (10,926 )      
 
   
     
 
Income before income tax expense
    55,973       62,960  
 
Income tax expense
    22,108       24,869  
 
   
     
 
Net income
  $ 33,865     $ 38,091  
 
   
     
 
Pro forma net income per weighted average common share (Note 6)
       
   
Basic
$ 1.16     $ 1.31  
   
Diluted
  $ 1.15     $ 1.30  
Pro forma weighted average common shares used in calculations
           
   
Basic
  29,158       29,015  
   
Potentially dilutive securities
    252       279  
 
   
     
 
   
Diluted
    29,410       29,294  
 
See notes to consolidated financial statements.
       

5


 

ARBITRON INC.
Consolidated Statements of Cash Flows
(In thousands)
(unaudited)

                         
            Nine Months Ended
            September 30,
           
            2001   2000
           
 
Cash flows from operating activities
       
    Net income
  $ 33,865     $ 38,091  
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
     
Depreciation and amortization of property and equipment
    1,659       1,393  
     
Other amortization
    1,907       1,797  
     
Loss on disposals of property and equipment
    2       38  
     
Deferred income taxes
    21,460       1,934  
     
Equity in net income of affiliate
    (426 )     (273 )
     
Distributions from affiliate
    3,300       2,475  
     
Bad debt expense
    168       145  
     
Tax benefit from stock option exercises
    73        
     
Changes in operating assets and liabilities
         
     
    Trade accounts receivable
    (5,212 )     5,120  
       
Prepaid expenses and other assets
    (241 )     (547 )
       
Accounts payable
    (4,962 )     245  
       
Accrued expenses and other current liabilities
    1,290       (3,422 )
       
Deferred revenue
    (6,494 )     (5,306 )
       
Other noncurrent liabilities
    (452 )     (1,449 )
 
   
     
 
       
    Net cash provided by operating activities
    45,937       40,241  
 
   
     
 
Cash flows from investing activities
       
    Additions to property and equipment
    (3,982 )     (1,600 )
 
Payments for business acquisitions
    (13,274 )      
 
Proceeds from disposals of property and equipment
    60       4  
 
   
     
 
   
Net cash used in investing activities
    (17,196 )     (1,596 )
 
   
     
 
Cash flows from financing activities
           
    Proceeds from stock option exercises and stock purchase plan
    240        
 
Proceeds from issuance of long-term debt
    250,000        
 
Repayment of long-term debt
    (25,000 )      
 
Payment of deferred financing costs
    (3,010 )      
 
Net cash distributions to Ceridian Corporation
    (235,958 )     (35,839 )
 
   
     
 
   
Net cash used in financing activities
    (13,728 )     (35,839 )
 
   
     
 
Effect of exchange rate changes on cash
    47        
 
   
     
 
Net increase in cash and cash equivalents
    15,060       2,806  
Cash and cash equivalents at beginning of period
    3,540       2,255  
 
   
     
 
Cash and cash equivalents at end of period
  $ 18,600     $ 5,061  
 
   
     
 
 
See notes to consolidated financial statements.
       

6


 

ARBITRON INC.
Notes to Consolidated Financial Statements
September 30, 2001
(Dollars in thousands, except per share data)
(unaudited)

1. Basis of Presentation and Consolidation

Presentation

     On March 30, 2001, Ceridian Corporation (“Ceridian”) separated into two independent, publicly traded companies — New Ceridian Corporation (“New Ceridian”) and Arbitron Inc. (“Arbitron” or the “Company”). The separation was accomplished through a tax-free spin-off to the shareholders of Ceridian (the “Spin-off”) of all of the shares of common stock of a newly formed, wholly owned subsidiary corporation (New Ceridian). In connection with the Spin-off, Ceridian completed an internal reorganization so that the business of New Ceridian consists solely of the business of Ceridian’s human resource service division and subsidiaries and Comdata subsidiaries (the “New Ceridian Business”) and the business of Ceridian consists solely of the media information division and subsidiaries (the “Arbitron Business”). In addition, at the time of the Spin-off, Ceridian was renamed “Arbitron Inc.” and New Ceridian was renamed “Ceridian Corporation” (hereafter referred to as “New Ceridian”). Shares of common stock of Ceridian represent a continuing interest in Arbitron.

     For purposes of, among other things, governing certain of the ongoing relations between New Ceridian and Arbitron as a result of the Spin-off, as well as to allocate certain tax, employee benefit and other liabilities arising prior to the Spin-off, the companies entered into various agreements, including a Distribution Agreement, Personnel Agreement, Tax Matters Agreement, Transition Services Agreement and Sublease Agreement.

     In general, pursuant to the terms of the Distribution Agreement, all assets of Ceridian prior to the date of the Spin-off, other than those specifically relating to the Arbitron Business, became assets of New Ceridian. The Distribution Agreement also provides for assumptions of liabilities and cross-indemnities designed to allocate generally, effective as of the date of the Spin-off, financial responsibility for all liabilities arising out of or in connection with the New Ceridian Business to New Ceridian and all liabilities arising out of or in connection with the Arbitron Business to Arbitron. In addition, New Ceridian will indemnify Arbitron for liabilities relating to past divestitures made by Ceridian to the extent these divestitures relate to all businesses other than the business of Arbitron and for liabilities relating to some of the litigation in which Ceridian is involved or its subsidiaries are involved. New Ceridian will also be liable for any claims arising from or based upon “controlling person” liability relating to the registration statement on Form 10 filed with the Securities and Exchange Commission by New Ceridian other than liabilities, if any, relating to material misstatements or omissions pertaining to the Arbitron Business, which liabilities will remain liabilities of Arbitron. Furthermore, New Ceridian will indemnify Arbitron for tax liabilities relating to matters existing on or before March 30, 2001.

     On January 31, 2001, in connection with completion of the Spin-off, Arbitron entered into a bank credit facility for $225,000 of financing. On March 29, 2001, proceeds of $200,000 were used to satisfy debt obligations of Ceridian with the remaining balance being available to Arbitron for working capital purposes. Arbitron also issued senior secured notes with an aggregate principal amount of $50,000 and distributed the proceeds realized from that issuance to New Ceridian to satisfy $50,000 of Ceridian’s debt obligations (see Note 3).

     Prior to the date of the Spin-off, New Ceridian and Arbitron entered into a Personnel Agreement to set forth the manner in which assets and liabilities under Ceridian’s employee benefit plans and other employee related liabilities will be divided between them. In general, New Ceridian is responsible for compensation and employee benefits relating to New Ceridian’s current employees and Ceridian’s former employees and Arbitron is responsible for compensation and employee benefits relating to its current employees. The Personnel Agreement also provided that substantially all unexercised Ceridian stock options outstanding at the date of the Spin-off became options to purchase Arbitron common stock or options to purchase New Ceridian common stock. Ceridian stock options held by Arbitron employees, regardless of whether the options are vested or unvested, remained options to purchase Arbitron common stock. The number of shares and exercise price were adjusted to reflect the effect of the Spin-off

7


 

ARBITRON INC.
Notes to Consolidated Financial Statements — Continued
(Dollars in thousands, except per share data)
(unaudited)

and a reverse stock split. The options continue to be and became exercisable on substantially the same terms and conditions set forth in the original Ceridian benefit plans. Ceridian stock options held by New Ceridian employees and consultants, regardless of whether the options were vested or unvested, were converted into options to purchase New Ceridian common stock. The value of replacement awards preserved, as closely as possible, the intrinsic value of awards that existed prior to the Spin-off.

     Due to the relative significance of New Ceridian as compared to Arbitron, the transaction was accounted for as a reverse Spin-off, with New Ceridian treated as the accounting successor to Ceridian for financial reporting purposes.

Consolidation

     The consolidated financial statements of Arbitron reflect the consolidated financial position, results of operations and cash flows of Arbitron Inc. and its subsidiaries: Arbitron Holdings Inc., Ceridian Infotech (India) Private Limited and CSW Research Limited.

     The financial information included herein may not necessarily reflect the financial position, results of operations and cash flows of Arbitron in the future or what they would have been had it been operated as a separate, stand-alone entity during the periods presented. In periods subsequent to the three month period ended March 31, 2001, the Company’s consolidated financial statements no longer include allocations from Ceridian.

     In periods ended prior to the Spin-off, the Company’s financial statements reflected the combined financial position and results of operations of Arbitron (The Arbitron Company, Tapscan Worldwide, and Northstar, each of which was a division of Ceridian, and CSW Research Limited and Ceridian Infotech (India) Private Limited, each of which was a wholly owned subsidiary of Ceridian).

     The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“the U.S.”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements. In the opinion of management, all adjustments considered for fair presentation have been included. The combined balance sheet at December 31, 2000 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Arbitron Inc. annual report on Form 10-K for the year ended December 31, 2000. Certain amounts previously reported for 2000 have been reclassified to conform with 2001 presentation.

2. Business Acquisition

     On July 2, 2001, Arbitron acquired all of the assets and assumed certain liabilities of the Radio’s All Dimension Audience Research (“RADAR”), the radio network audience measurement service business of Statistical Research, Inc. (“SRI”). The results of RADAR’s operations have been included in the consolidated financial statements since that date. RADAR is a national radio ratings service that measures audiences to radio commercials aired on 29 networks. The service produces estimates using a 12-month 12,000-person telephone survey together with the industry-standard commercial clearance system. The primary reason for the acquisition was to gain entry into the network radio measurement business. Arbitron plans to provide larger sample sizes to customers by combining Arbitron’s existing diary sampling process with the RADAR network commercial clearance system.

     The aggregate consideration to be paid by Arbitron is payable in cash up to $25,000, subject to purchase price adjustments. The company paid $10,275 during the three month period ended September 30, 2001. A second cash installment of $11,000 (subject to indemnification claims) is due on July 2, 2002, and $4,000 is payable as

8


 

ARBITRON INC.
Notes to Consolidated Financial Statements — Continued
(Dollars in thousands, except per share data)
(unaudited)

contingent consideration. The $11,000 installment, due on July 2, 2002, was recorded at its present value of $10,243 with a corresponding adjustment to goodwill. The contingent consideration will be recorded as a liability with a corresponding adjustment to goodwill, if and when the contingency is met. In connection with the acquisition, Arbitron also entered into several operational agreements with SRI, including a software development agreement pursuant to which SRI will adapt RADAR to Arbitron’s diary based ratings measurement method.

     The following table summarizes the estimated fair value of the assets acquired and liabilities assumed from SRI for the acquisition of RADAR:

           
Trade accounts receivable
  $ 457  
Property & equipment
    70  
Intangible assets
    2,210  
Goodwill
    18,455  
 
   
 
 
Total assets acquired
    21,192  
Deferred revenue
    (675 )
 
   
 
 
Net assets acquired
  $ 20,517  
 
   
 

     Acquired intangible assets consist of $2,110 assigned to computer software (five-year useful life) and $100 (five-year useful life) assigned to a non compete covenant .

     In accordance with Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, the $18,455 of goodwill resulting from the RADAR acquisition will not be amortized. Rather, the goodwill will be evaluated for impairment annually, beginning in 2002. For the year ending December 31, 2001, Arbitron expects to deduct RADAR goodwill amortization in the amount of $615 for income tax purposes.

     Prior to the acquisition, RADAR used the percentage of completion method for recognizing revenue. Subsequent to the acquisition, revenue will be recognized as survey data is delivered to customers. Arbitron recorded $675 of deferred revenue in connection with the acquisition, which is based on the estimated remaining costs to be incurred prior to delivery of the 2001 surveys plus a normal profit margin. The deferred revenue recorded in connection with the acquisition is approximately $800 less than the amount that would otherwise be deferred under the terms of the contracts with customers. The difference in deferred revenue decreased revenue bv approximately $400 for the three month period ended September 30, 2001, and will have the same impact on revenue for the three month period ended December 31, 2001.

     The following unaudited pro forma information presents the results of operations of the Company as if the RADAR acquisition had occurred as of January 1, 2001 and 2000, respectively.

                 
    Nine Months Ended
    September 30,
   
    2001   2000
   
 
Pro forma revenue
  $ 180,956     $ 166,556  
Pro forma net income
  $ 34,388     $ 38,814  
Diluted shares used in calculations (in thousands)
    29,410       29,294  
Pro forma diluted net income per common share
  $ 1.17     $ 1.32  
Historical diluted net income per share as reported
  $ 1.15     $ 1.30  

9


 

ARBITRON INC.
Notes to Consolidated Financial Statements — Continued
(Dollars in thousands, except per share data)
(unaudited)

3. Long-term Debt

     Long-term debt consists of the following:

September 30,
2001

Senior fixed rate notes $ 50,000
Long-term revolving credit facility 175,000

$ 225,000

     On January 31, 2001, the Company entered into a $225,000 five-year revolving credit agreement with a consortium of banks (“Credit Facility”). On March 29, 2001, in connection with the Spin-off, $200,000 was drawn on the facility and distributed to Ceridian.

     The Credit Facility has two borrowing options, a Eurodollar rate option or a base rate option, as defined in the agreement. Under the Eurodollar option, the Company may elect interest periods of one, two, three or six months at the inception date and each renewal date. Borrowings under the Eurodollar option bear interest at the London Interbank Offered Rate (LIBOR) plus a margin of 2.00% to 2.75%. Borrowings under the base rate option bear interest at the higher of the lead lender’s prime rate or the Federal Funds rate plus 50 basis points, plus a margin of .50% to 1.25%. The specific margins, under both options, will be determined based on the Company’s ratio of indebtedness to earnings before interest, taxes, depreciation and amortization (leverage ratio), and will be adjusted every ninety days. The agreement contains a commitment fee provision whereby the Company will be charged a fee based on the unused portion of the facility. Under the terms of the Credit Facility, the Company is required to maintain certain other financial ratios, in addition to the leverage ratio, and meet other financial conditions. The agreement limits, among other things, the Company’s ability to sell assets, incur additional indebtedness, grant or incur liens on its assets, repay indebtedness, make investments or acquisitions, repurchase or redeem capital stock and engage in certain mergers or consolidations. The agreement prohibits the payment of cash dividends through the year ending December 31, 2002.

     Upon consummation of the Spin-off, the Company issued $50,000 of senior secured notes due January 31, 2008. In connection with the Spin-off, the Company distributed the $50,000 of note proceeds to Ceridian. The notes bear interest at a fixed rate of 9.96%.

     As of September 30, 2001, the Company had made discretionary payments of $25,000 on the Credit Facility.

4. Accounting for Derivatives

     SFAS No. 133, Accounting for Derivative Instruments and Hedging Activity (as amended by SFAS No. 138 with respect to certain interpretations) became effective for the Company in January 2001. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities and requires that entities recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. These fair value adjustments are to be included either in the determination of net income or as a component of other comprehensive income, depending on the purpose of the derivative transaction. The Company adopted SFAS No. 133, as amended, during the three month period ended March 31, 2001. The effect of adoption on the Company’s consolidated financial statements was not material.

10


 

ARBITRON INC.
Notes to Consolidated Financial Statements — Continued
(Dollars in thousands, except per share data)
(unaudited)

     The Company’s initial objective for holding or issuing derivative instruments is to mitigate its exposure to interest rate risk. The Company’s strategy for minimizing interest rate exposure on variable rate debt is to lock into fixed rates of interest with pay-fixed, receive-variable interest rate swaps. The Company’s foreign operations are not significant at this time and, therefore, exposure to foreign currency rate fluctuations is minimal.

     The Company entered into an interest rate swap agreement effective on March 29, 2001 to hedge its exposure to fluctuations in interest rates relating to its outstanding variable rate debt. The contract’s notional amount was $200,000 at inception, and declines each quarter over the life of the contract in proportion to the Company’s estimated outstanding balance on its revolving credit agreement. Under the terms of the contract, the Company will pay a fixed rate of 5.02% and receive LIBOR, which resets every 90 days. The contract matures on March 31, 2005. The interest rate swap agreement was designated as a cash flow hedge, and was designed to be entirely effective by matching the terms of the swap agreement with the debt. The base rate for both the debt and the swap is LIBOR and the instruments have the same renewal dates over the lives of the instruments.

     The fair value of the cash flow hedge was recorded as a non-current liability and the offsetting unrealized loss was recorded in accumulated other comprehensive income as of September 30, 2001.

     The Company did not hold derivative instruments prior to January 1, 2001. The Company does not hold or issue derivative financial instruments for speculative or trading purposes.

5. New Accounting Pronouncements

     SFAS No. 141, Business Combinations, became effective for the Company on July 1, 2001. SFAS No. 141 prohibits the use of the pooling-of-interests method for business combinations occurring after June 30, 2001, and establishes accounting and reporting standards for business combinations accounted for under the purchase accounting method. SFAS No. 141 provides criteria for the measurement and recognition of goodwill and other acquired intangible assets. The Company implemented SFAS No. 141 during the three month period ended September 30, 2001 with no material effect on its consolidated balance sheet and income statement.

     SFAS No. 142, Goodwill and Other Intangible Assets, will become effective for the Company on January 1, 2002. Under SFAS No. 142, the Company’s goodwill will no longer be amortized to expense but rather goodwill will be measured for impairment on an annual basis under the guidance set forth in the standard. Additionally, SFAS No. 142 requires disclosure of pro forma net income and earnings per share for prior periods as if the standard was in effect for all periods presented. The Company is currently evaluating the impact that SFAS No. 142 will have on its consolidated financial statements. The Company has adopted the provision of SFAS No. 142 in accounting for goodwill in the RADAR acquisition.

     SFAS No. 144, Impairment or Disposal of Long-Lived Assets, will become effective for the Company on January 1, 2002. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets, provides guidance on implementation issues related to SFAS No.121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and addresses the accounting for a segment of a business accounted for as a discontinued operation. The Company is currently evaluating the impact that SFAS No. 144 will have on its consolidated financial statements.

6. Net Income and Pro Forma Net Income per Weighted Average Common Share

     The computations of basic and diluted net income per common share for the three month period ended September 30, 2001 are based on Arbitron’s weighted average shares of common stock and potentially dilutive securities outstanding, respectively. For the nine month period ended September 30, 2001, as well as periods ended prior to the Spin-off, the pro forma net income per weighted average common share computations are based in part,

11


 

ARBITRON INC.
Notes to Consolidated Financial Statements — Continued
(Dollars in thousands, except per share data)
(unaudited)

or entirely, upon Ceridian’s weighted average number of shares of Ceridian common stock and potentially dilutive securities outstanding.

     Potentially dilutive securities are calculated in accordance with the treasury stock method, which assumes that the proceeds from the exercise of all stock options are used to repurchase the Company’s common stock at the average market price for the period.

     In November 2000, Ceridian’s board of directors approved a one-for-five reverse stock split for Arbitron common stock, which was effective immediately after the Spin-off. Pro forma net income per common share and weighted average common shares outstanding included in the accompanying consolidated financial statements and related notes have been adjusted to reflect this reverse stock split.

7. Comprehensive Income

     The Company’s comprehensive income is comprised of net income, foreign currency translation adjustments and changes in unrealized gains and losses on interest rate swap agreements.

     The unrealized loss on the interest rate swap was calculated based upon a valuation of the instrument by a financial institution. The unrealized loss of $2,861 for the three months ended September 30, 2001 is due to the decline in market interest rates during the period.

     The components of comprehensive income are as follows:

                                   
      Three Months Ended   Nine Months Ended
      September 30,   September 30,
      2001   2000   2001   2000
     
 
 
 
Net income
  $ 12,856     $ 15,383     $ 33,865     $ 38,091  
Items of other comprehensive income
Change in foreign currency translation adjustment
    69             66        
  Change in unrealized loss on interest rate swap, net of tax
    (2,861 )           (3,199 )      
 
   
     
     
     
 
Comprehensive income
  $ 10,064     $ 15,383     $ 30,732     $ 38,091  
 
   
     
     
     
 

12


 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
               RESULTS OF OPERATIONS

     The following discussion should be read in conjunction with Arbitron’s consolidated financial statements and the notes related to those consolidated financial statements contained elsewhere in this Form 10-Q.

Forward-Looking Statements

     This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The statements regarding Arbitron in this document that are not historical in nature, particularly those that utilize terminology such as “may,” “will,” “should,” “likely,” “expects,” “anticipates,” “estimates,” “believes” or “plans,” or comparable terminology, are forward-looking statements based on current expectations about future events, which Arbitron has derived from the information currently available to it. These forward-looking statements involve known and unknown risks and uncertainties that may cause our results to be materially different from results implied in such forward-looking statements. These risks and uncertainties include whether we will be able to:

  realize the benefits we expect to achieve from our Spin-off from Ceridian Corporation (Ceridian);
 
  renew contracts with large customers as they expire;
 
  successfully execute our business strategies, including timely implementation of our Portable People Meter and our Webcast RatingsSM service, as well as expansion of international operations;
 
  benefit from further consolidation in the radio industry; and
 
  keep up with rapidly changing technological needs of our customer base, including creating new products and services that meet those needs.

     Additional important factors known to Arbitron that could cause forward-looking statements to turn out to be incorrect are identified and discussed from time to time in Arbitron’s filings with the Securities and Exchange Commission, including in particular the risk factors discussed under the caption “ITEM 1. BUSINESS — Business Risks” in Arbitron’s Form 10-K for the year ended December 31, 2000.

     The forward-looking statements contained in this document speak only as of the date hereof, and Arbitron undertakes no obligation to correct or update any forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

     Arbitron Inc. was formerly known as Ceridian. Prior to March 31, 2001, Ceridian was a publicly traded company, the principal lines of business of which were the human resource services business, the Comdata business, which provided transaction processing and regulatory compliance services for the transportation industry, and the radio audience measurement business.

     On March 30, 2001, Ceridian effected a reverse spin-off (the Spin-off). In connection with the Spin-off, the assets and liabilities associated with the human resource services division, human resource services and Comdata subsidiaries were transferred to a new corporation (which we call “New Ceridian” in this document). The radio audience measurement business stayed with Ceridian. Ceridian then distributed the stock of this new company to its existing stockholders. As a result, New Ceridian is now a separate publicly traded corporation. In connection with the Spin-off, Ceridian changed its name to Arbitron Inc. and effected a one-for-five reverse stock split, and New Ceridian changed its name to Ceridian Corporation.

     The information presented below relates to the business of Arbitron following the Spin-off unless the context otherwise requires. Except as context otherwise requires, the terms “Arbitron” or the “Company” as used herein shall include Arbitron Inc. and its subsidiaries.

13


 

     The consolidated financial statements of Arbitron reflect the consolidated financial position, results of operations and cash flows of Arbitron Inc. and its subsidiaries: Arbitron Holdings Inc., Ceridian Infotech (India) Private Limited and CSW Research Limited. The financial information included in this Form 10-Q includes expenses related to certain centralized services provided by Ceridian during the periods presented prior to the Spin- off. The expenses for these services have been allocated to Arbitron based on utilization of specific services or, where an estimate could not be determined, based on Arbitron’s revenues in proportion to Ceridian’s total revenues. Management believes these allocation methods provided a rational basis for allocation. However, the costs of these services and benefits charged to Arbitron are not necessarily indicative of the costs that would have been incurred if Arbitron had performed these services as a separate entity. Accordingly, following the Spin-off, the financial results of Arbitron may be different than results for periods prior to the Spin-off.

     Arbitron’s radio audience measurement business has generally accounted for a substantial portion of its revenue. In recent years, significant consolidation of radio station ownership has tended to intensify competition within the radio industry and to intensify competition between radio and other forms of media for advertising dollars. At the same time, audiences have become more fragmented as a result of the greatly increased programming choices and entertainment and media options. Consequently, the increased competition together with the desire for more complex information have driven demand by radio broadcasters, advertising agencies and advertisers for Arbitron’s audience measurement information. In addition, although radio industry consolidation has led to the increased concentration of Arbitron’s customer base, it has also contributed to an increase in the number of stations subscribing for the ratings service as well as increases in sales of Arbitron’s analytical software applications and other services.

     Clear Channel Communications ("Clear Channel") is Arbitron's largest customer and represented approximately 22% of Arbitron's revenue in 2000. In August 2001 Arbitron entered into four year License Agreements with Clear Channel, effective January 1, 2001, to provide audience estimates, software and other ancillary services to Clear Channel radio stations in 185 markets. Arbitron and Clear Channel had been in negotiations since the fourth quarter of 2000 over contracts which collectively had accounted for approximately 14% of Arbitron's revenue in 2000 that had expired with the Fall 2000 or Winter 2001 survey. The Clear Channel License Agreement for the Arbitron Radio Market Report ratings service has a renewal value of approximately $124 million over the four year term period. This renewal value includes those contracts which had expired with the Fall 2000 or Winter 2001 survey and the renewal of those contracts that will expire during the four year contract term. In addition to the radio ratings contracts, Arbitron has also entered into software and other ancillary service license agreements with Clear Channel. In addition, in August 2001, Arbitron also entered into a new five year license agreement with Citadel Communications. Citadel’s previous contract with Arbitron had expired at the end of 2000. Arbitron cannot make any assurances that it will retain current customers or attract new customers that would replace the revenue that could be lost if a key customer failed to renew its agreement with Arbitron.

     Arbitron recognizes revenue for products and services over the term of the license agreement as products and services are delivered. Direct costs associated with data collection and diary processing are expensed as incurred.

     The computations of basic and diluted net income per weighted average common share for the three month period ended September 30, 2001 are based on Arbitron’s weighted average shares of common stock and potentially dilutive securities outstanding, respectively. For the nine month period ended September 30, 2001, as well as periods ended prior to the Spin-off, the pro forma net income per weighted average common share computations are based in part, or entirely, upon Ceridian’s weighted average number of shares of Ceridian common stock and potentially dilutive securities outstanding. Arbitron has also presented EBITDA as supplemental information that management of Arbitron believes may be useful to some investors in evaluating Arbitron because it is widely used as a measure to evaluate a company’s operating performance before interest expense, as well as to evaluate its operating cash flow. EBITDA is calculated by adding back net interest expense, income tax expense, depreciation and amortization on property and equipment and amortization of goodwill and other intangible assets to net income. EBITDA should not be considered a substitute either for net income, as an indicator of Arbitron’s operating performance, or for cash flow, as a measure of Arbitron’s liquidity. In addition, because EBITDA is not calculated identically by all companies, the presentation here may not be comparable to other similarly titled measures of other companies.

14


 

Results of Operations

Comparison of the Three Months Ended September 30, 2001 to the Three Months Ended September 30, 2000

     The following table sets forth information with respect to the consolidated statements of income of Arbitron.

Consolidated Statements of Income
(Dollars in thousands, except per share amounts)

                                                   
                      Increase   Percentage of
      Three Months Ended   (Decrease)   Revenue
      September 30,  
 
      2001   2000   Dollar   Percent   2001   2000
     
 
 
 
 
 
Revenue
  $ 65,633     $ 58,395     $ 7,238       12.4 %     100.0 %     100.0 %
Costs and expenses
  Cost of revenue     19,668       16,219       3,449       21.3 %     30.0 %     27.8 %
 
Selling, general and administrative
    12,460       11,214       1,246       11.1 %     19.0 %     19.2 %
 
Research and development
    5,916       3,807       2,109       55.4 %     9.0 %     6.5 %
 
   
     
     
     
     
     
 
 
Total costs and expenses
    38,044       31,240       6,804       21.8 %     58.0 %     53.5 %
 
   
     
     
     
     
     
 
Operating income
    27,589       27,155       434       1.6 %     42.0 %     46.5 %
 
Equity in net loss of affiliate
    (1,393 )     (1,729 )     336       19.4 %     (2.1 %)     (3.0 %)
 
   
     
     
     
     
     
 
Income before interest and income tax expense
    26,196       25,426       770       3.0 %     39.9 %     43.5 %
 
Interest income
    240             240       100.0 %     0.4 %     0.0 %
 
Interest expense
    (5,188 )           5,188       100.0 %     (7.9 %)     0.0 %
 
   
     
     
     
     
     
 
Income before income tax expense
    21,248       25,426       (4,178 )     (16.4 %)     32.4 %     43.5 %
 
Income tax expense
    8,392       10,043       (1,651 )     (16.4 %)     12.8 %     17.2 %
 
   
     
     
     
     
     
 
Net income
  $ 12,856     $ 15,383     $ (2,527 )     (16.4 %)     19.6 %     26.3 %
 
   
     
     
     
     
     
 
Net income and pro forma net income per weighted average common share
  Basic   $ 0.44     $ 0.53     $ (0.09 )     (17.0 %)                
 
Diluted
  $ 0.43     $ 0.52     $ (0.09 )     (17.3 %)                
Other data:
                                               
 
EBITDA
  $ 27,546     $ 26,510     $ 1,036       3.9 %     42.0 %     45.4 %
 
   
     
     
     
     
     
 

     Revenue. Revenue increased 12.4% from $58.4 million for the three months ended September 30, 2000 to $65.6 million for the same period in 2001. RADAR accounted for 25% of the increase. Approximately 40% of the increase is related to an increase in the ratings subscriber base and escalations in multi-year customer contracts and contract renewals. Additionally, analytical software applications and qualitative services accounted for approximately 23% and 12% of the increase, respectively.

     Cost of Revenue. Cost of revenue increased 21.3% from $16 .2 million for the three months ended September 30, 2000 to $19.7 million for the same period in 2001, and increased as a percentage of revenue from 27.8% in 2000 to 30.0% in 2001. RADAR accounted for $0.7 million of the dollar increase. The remaining dollar increase of $2.7 million is attributed to increases in computer center costs, royalties and diary and data collection costs.

     Selling, General and Administrative. Selling, general and administrative expenses increased 11.1% from $11.2 million for the three months ended September 30, 2000 to $12.5 million for the same period in 2001 but decreased as a percentage of revenue from 19.2% in 2000 to 19.0% in 2001. RADAR expenses accounted for $0.3 million of the dollar increase. The remaining dollar increase of $0.9 million is attributed to certain variable costs,

15


 

including marketing expenses related to the Webcast RatingsSM service, higher marketing communications costs and overall increases in selling expenses.

     Research and Development. Research and development increased 55.4% from $3.8 million during the three months ended September 30, 2000 to $5.9 million for the same period in 2001 and increased as a percentage of revenue from 6.5% in 2000 to 9.0% in 2001. RADAR accounted for $0.4 million of the dollar increase. Of the remaining $1.7 million dollar increase, approximately 60% of the increase is related to increased spending on new product development, related to the Portable People Meter (PPM) and the Webcast Ratings SM service with the remainder being attributed to product development and enhancement in the core services.

     Operating Income. Operating income increased 1.6% from $27.2 million for the three months ended September 30, 2000 to $27.6 million for the same period in 2001. Operating margin decreased from 46.5% in 2000 to 42.0% in 2001. The decline is attributed primarily to the increase in cost of revenue and research and development costs as a percentage of revenue.

     Equity in Net Loss of Affiliate. Equity in net loss of affiliate decreased 19.4% from $1.7 million for the three months ended September 30, 2000 to $1.4 million for the same period in 2001.

     Interest Expense. Of the $5.2 million of interest expense for the three months ended September 30, 2001, $5.0 million is related to the long-term debt incurred in connection with the Spin-off, and $0.2 million is related to interest on the deferred payment to the former owners of RADAR. Prior to the Spin-off, the Company had no debt, and therefore, no interest expense.

     Income Tax Expense. Arbitron’s effective tax rate was 39.5% for the three months ended September 30, 2000 and 2001.

     Net Income. Net income decreased 16.4% from $15.4 million for the three months ended September 30, 2000 to $12.9 million for the same period in 2001. The decrease was primarily attributed to interest expense on long-term debt outstanding since the Spin-off.

     EBITDA. EBITDA increased 3.9% from $26.5 million for the three months ended September 30, 2000 to $27.5 million for the same period in 2001.

16


 

Comparison of the Nine Months Ended September 30, 2001 to the Nine Months Ended September 30, 2000

     The following table sets forth information with respect to the consolidated statements of income of Arbitron.

Consolidated Statements of Income
(Dollars in thousands, except per share amounts)

                                                   
                      Increase   Percentage of
      Nine Months Ended   (Decrease)   Revenue
      September 30,  
 
      2001   2000   Dollar   Percent   2001   2000
     
 
 
 
 
 
Revenue
  $ 176,087     $ 159,593     $ 16,494       10.3 %     100.0 %     100.0 %
Costs and expenses
 
Cost of revenue
    58,352       53,286       5,066       9 .5 %     33.2 %     33.4 %
 
Selling, general and administrative
    35,625       33,190       2,435       7 .3 %     20.2 %     20.8 %
 
Research and development
    16,250       10,430       5,820       55.8 %     9.2 %     6.5 %
 
   
     
     
     
     
     
 
 
Total costs and expenses
    110,227       96,906       13,321       13.7 %     62.6 %     60.7 %
 
   
     
     
     
     
     
 
Operating income
    65,860       62,687       3,173       5 .1 %     37.4 %     39.3 %
 
Equity in net income of affiliate
    426       273       153       56.0 %     0.2 %     0.2 %
 
   
     
     
     
     
     
 
Income before interest and income tax expense
    66,286       62,960       3,326       5 .3 %     37.6 %     39.5 %
 
Interest income
    613             613       100.0 %     0.4 %     0.0 %
 
Interest expense
    (10,926 )           10,926       100.0 %     (6.2 %)     0.0 %
 
   
     
     
     
     
     
 
Income before income tax expense
    55,973       62,960       (6,987 )     (11.1 %)     31.8 %     39.5 %
 
Income tax expense
    22,108       24,869       (2,761 )     (11.1 %)     12.6 %     15.6 %
 
   
     
     
     
     
     
 
Net income
  $ 33,865     $ 38,091     $ (4,226 )     (11.1 %)     19.2 %     23.9 %
 
   
     
     
     
     
     
 
Net income per weighted average common share
  Basic   $ 1.16     $ 1.31     $ (0.15 )     (11.5 %)                
 
Diluted
  $ 1.15     $ 1.30     $ (0.15 )     (11.5 %)                
Other data:
                                               
 
EBITDA
  $ 69,851     $ 66,123     $ 3,728       5 .6 %     39.7 %     41.4 %
 
   
     
     
     
     
     
 

     Revenue. Revenue increased 10.3% from $159.6 million during the nine months ended September 30, 2000 to $176.1 million for the same period in 2001. RADAR accounted for 11% of the increase. Approximately 53% of the increase is related to an increase in the ratings subscriber base and escalations in multi-year customer contracts and contract renewals. Additionally, analytical software applications contributed approximately 22% of the increase, with the remaining growth being mainly attributed to qualitative services.

     Cost of Revenue. Cost of revenue increased 9.5% from $53.3 million for the nine months ended September 30, 2000 to $58.4 million for the same period in 2001, but decreased as a percentage of revenue from 33.4% in 2000 to 33.2% in 2001. RADAR accounted for $0.7 million of the dollar increase. The remaining dollar increase of $4.4 million is attributed to increases in computer center costs, royalties and diary and data collection costs.

     Selling, General and Administrative. Selling, general and administrative expenses increased 7.3% from $33.2 million for the nine months ended September 30, 2000 to $35.6 million for the same period in 2001 but decreased as a percentage of revenue from 20.8% in 2000 to 20.2% in 2001. RADAR accounted for $0.3 million of the dollar increase. The remaining $2.1 million increase in dollar amount is attributed to certain variable costs, including marketing expenses related to the upcoming Webcast Ratings SM service, higher marketing communications costs and overall increases in selling expenses.

17


 

     Research and Development. Research and development increased 55.8% from $10.4 million during the nine months ended September 30, 2000 to $16.3 million for the same period in 2001 and increased as a percentage of revenue from 6.5% in 2000 to 9.2% in 2001. RADAR accounted for $0.4 million of the dollar increase. Of the remaining $5.5 million dollar increase, approximately 64% is related to increased spending on new product development, related to the PPM and the Webcast RatingsSM service and 36% is attributed to product development and enhancement in the core services.

     Operating Income. Operating income increased 5.1% from $62.7 million for the nine months ended September 30, 2000 to $65.9 million for the same period in 2001. Operating margin decreased from 39.3% in 2000 to 37.4% in 2001. The operating margin decrease is due primarily to the increase in research and development costs as a percentage of revenue.

     Equity in Net Income of Affiliate. Equity in net income of affiliate increased 56.0% from $0.3 million for the nine months ended September 30, 2000 to $0.4 million for the same period in 2001.

     Interest Expense. Of the $10.9 million of interest expense for the nine months ended September 30, 2001, $10.7 million is related to the long-term debt incurred in connection with the Spin-off, and $0.2 million is related to interest on the deferred payment to the former owners of RADAR. Prior to the Spin-off, the Company had no debt, and therefore, no interest expense.

     Income Tax Expense. Arbitron’s effective tax rate was 39.5% for the nine months ended September 30, 2000 and 2001.

     Net Income. Net income decreased 11.1% from $38.1 million for the nine months ended September 30, 2000 to $33.9 million for the same period in 2001. The decrease was primarily attributed to interest expense on long-term debt outstanding since the Spin-off.

     EBITDA. EBITDA increased 5.6% from $66.1 million for the nine months ended September 30, 2000 to $69.9 million for the same period in 2001.

Liquidity and Capital Resources

     Prior to the Spin-off, Arbitron participated in Ceridian’s centralized cash management system to finance its operations. Cash deposits from the majority of Arbitron’s operations were transferred to Ceridian on a daily basis and Ceridian funded Arbitron’s cash disbursements from the centralized cash management system. Accordingly, Arbitron’s net change in cash in periods prior to the Spin-off is not indicative of its liquidity or cash flow.

     Net cash provided by operating activities was $45.9 million and $40.2 million for the nine month periods ended September 30, 2001 and 2000, respectively, an increase of $5.7 million. The increase is largely due to the recovery of deferred tax assets, which produced additional cash flows of $19.5 million in 2001 over the same period in 2000. A decrease in net income lowered cash flow from operating activities by $4.2 million. The decrease in net income is primarily attributed to interest expense on debt incurred in connection with the Spin-off. An increase in accounts receivable lowered cash flow provided by operating activities by $10.3 million (largely related to the retroactive billing of the Clear Channel contract).

     Net cash used in investing activities was $17.2 million and $1.6 million for the nine month periods ended September 30, 2001 and 2000, respectively, an increase of $15.6 million. The increase is attributed to cash paid for acquired businesses of $13.3 million, and an increase in property and equipment additions of $2.4 million. During the nine months ended September 30, 2001, the Company paid the final installment of $3.0 million related to the Tapscan Worldwide business acquired in May 1998, and paid the first installment for the RADAR acquisition of $10.2 million. There were no cash payments for acquired businesses during the nine month period ended September 30, 2000. The increase in property and equipment additions is largely related to leasehold improvements for new and existing facilities, as well as hardware related to PPM and the Webcast RatingsSM service.

18


 

     Net cash used in financing activities was $13.7 million and $35.8 million for the nine month periods ended September 30, 2001 and 2000, respectively, a decrease of $22.1 million. The decrease is primarily related to cash distributions to Ceridian. Cash distributions to Ceridian during the nine month period ended September 30, 2000 were $35.8 million. On March 29, 2001, Arbitron borrowed $250.0 million, consisting of $50.0 million in senior notes and $200.0 million under a Credit Facility, and distributed the net proceeds to Ceridian in connection with the Spin-off. Net cash distributions to Ceridian for the nine month period ended September 30, 2001 were $236.0 million. During the nine month period ended September 30, 2001, Arbitron made discretionary payments of $25.0 million on the Credit Facility bringing the outstanding balance to $175.0 million as of September 30, 2001. During the nine month period ended September 30, 2000, Arbitron had no debt-related activity.

     The unused portion of the Credit Facility, $50.0 million as of September 30, 2001, is available to support Arbitron’s operations, however, it is subject to mandatory reduction provisions for the passage of time and for excess cash flow. The unused portion of the Credit Facility will be reduced by $25.0 million on March 30, 2002 in accordance with the mandatory reduction provisions, and it is likely that it will be further reduced on or after March 30, 2002 in accordance with the excess cash flow provisions.

     Under the terms of the Credit Facility, Arbitron is required to maintain leverage and coverage ratios and meet other financial conditions. The agreement restricts, among other things, Arbitron’s ability to sell assets, incur additional indebtedness, grant or incur liens on its assets, repay senior indebtedness, pay cash dividends, make certain investments or acquisitions, repurchase or redeem capital stock and engage in certain mergers or consolidations. Arbitron holds a derivative instrument as a hedge of its variable interest rate debt as indicated below under Item 3.

     Arbitron expects that cash flow generated from operations and available borrowings from its Credit Facility, if necessary, will be sufficient to support its operations and growth initiatives for the foreseeable future.

Seasonality

     Arbitron recognizes revenue for products and services over the terms of license agreements as products and services are delivered, and expenses are recognized as incurred. Arbitron gathers radio-listening data in approximately 285 local markets in the United States and Puerto Rico. All markets are measured at least twice per year (April, May, June, “Spring Survey,” and October, November, December, “Fall Survey”). In addition, major markets are measured two additional times per year (January, February, March, “Winter Survey,” and July, August, September “Summer Survey”). Arbitron’s revenue is generally higher in the first and third quarters as the result of the delivery of the Fall Survey and Spring Survey, respectively, to all markets compared to revenue in the second and fourth quarters when delivery of the Winter Survey and Summer Survey, respectively, is only delivered to major markets. Arbitron’s expenses are generally higher in the second and fourth quarters as the “Spring Survey” and “Fall Survey” are being conducted.

19


 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK

Interest Risk

     Following the Spin-off, Arbitron’s primary market risk is with respect to changes in interest rates. Effective with the Spin-off, Arbitron borrowed $200.0 million in floating rate debt under its Credit Facility. Borrowings under the facility bear interest at LIBOR or the lender’s base rate plus an applicable margin, as defined, between 2.0% and 2.75%.

     Arbitron entered into an interest rate swap contract effective on March 29, 2001 to hedge against rate fluctuations relating to its variable rate debt. The contract’s notional amount was $200.0 million at inception, and declines each quarter over the life of the contract in proportion to Arbitron’s estimated outstanding balance on its revolving credit agreement. Under the terms of the contract, Arbitron will pay a fixed rate of 5.02% and receive LIBOR, which resets every 90 days. The contract matures on March 31, 2005. As a result, Arbitron believes that it has sufficiently protected itself from interest rate changes. The effective rate on the debt was 7.52% for the three month period ended September 30, 2001.

Foreign Currency Risk

     Arbitron’s foreign operations are not significant at this time, and, therefore, Arbitron’s exposure to foreign currency risk is minimal.

20


 

PART II — OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     
(a) Exhibits    
 
Exhibit No   Description
 
10.1   Customer Contract by and between Arbitron Inc. and Clear Channel Communications, Inc.
 
 
 
(b) Reports on Form 8-K    

  Arbitron filed a Current Report on Form 8-K on July 17, 2001 reporting the purchase of Radio’s All Dimension Audience Research (“RADAR”) from Statistical Research, Inc.
 
  Arbitron filed a Current Report on Form 8-K on July 19, 2001 that included a press release reporting its second quarter 2001 earnings and a press release reporting the first ratings results for its Portable People Meter.
 
  Arbitron filed a Current Report on Form 8-K on August 9, 2001 reporting that a multi-year ratings license agreement was reached with Clear Channel Radio.
 
  Arbitron filed an amendment to a Current Report on Form 8-K on September 17, 2001, amending the Form 8-K filed on July 17, 2001 reporting the RADAR acquisition. The 8-K/A included financial statements of RADAR and pro forma financial information for Arbitron, not included in the original Form 8-K filed on July 17, 2001.

21


 

SIGNATURE

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, we have duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

   
ARBITRON INC.
 
By:     /s/ WILLIAM J. WALSH
      William J. Walsh
      Executive Vice President of Finance and Planning and
      Chief Financial Officer
 
Date: November 12, 2001

22


 

EXHIBIT INDEX

     
Exhibit No   Description
 
10.1   Customer Contract by and between Arbitron Inc. and Clear Channel Communications, Inc.

23 EX-10.1 3 w54680ex10-1.htm CUSTOMER CONTRACT ex10-1

 

EXHIBIT 10.1
*CONFIDENTIAL TREATMENT OF THIS EXHIBIT IS REQUESTED*

Station License Agreement to Receive and
Use Arbitron Radio Listening Estimates

Date of Proposal: August 2, 2001

THIS AGREEMENT is between The Arbitron Company, a division of Ceridian Corporation, (“Arbitron”) and the undersigned radio broadcaster (“Station”), a Texas Corporation. Arbitron hereby grants to Station, for the radio stations listed below, a limited license to receive and use Arbitron data and listening estimates (“Arbitron Data” or “Data”) for the survey(s) and for the geographic area (“Market”) described in Section 1. This license is personal, nontransferable and nonexclusive. Such Arbitron Data may be furnished to Station in printed or other form (“Reports”), at Arbitron’s option, but title thereto will remain with Arbitron at all times.

1.     Services Provided; Term:

This Agreement shall become effective when countersigned by Arbitron’s Contract Manager and shall be for a period of 4.25 years beginning and ending on the dates described below (the “Term”). This Agreement will continue without regard to Station’s ownership of the radio station(s) licensed hereunder absent a valid Assignment pursuant to Section 11 of this Agreement.

Broadcast (“Station): Clear Channel Communications, Inc.

For use only by radio station(s): See Schedule “A”

Arbitron Radio Geographic Area (“Market”): See Schedule “A”

Term Begins 1/1/01; ends 3/31/05.

Number of surveys currently provided during first Term year: See Schedule “A”.

Number of copies currently provided per survey: See Schedule “A”.

Reports currently

shall be titled. [   ]Spring [   ]Fall [   ] Winter [   ]Summer See Schedule “A”

First Report: See Schedule “A”

All representations in this Section regarding number of surveys, number of printed copies and Report titles are subject to qualifications set forth in Section 6(a) herein.

2.     Annual Rate:

A License Charge in the form of a Net Annual Rate for each year of the Term, which may be subject to adjustments and discounts pursuant to Sections 3, 4, 6, 11 and 16 of this Agreement, shall be paid by Station; with [See Attachment “A”/Schedule “A”] payments due on monthly (the “Periodic Charge” or “Charge”).

The Gross Annual Rate for the first Term year is $      . See Attachment “A”/Schedule “A”.

Subject to Sections 3, 4, 6 and 11 hereof, neither the Gross nor the Net Annual Rate will change during a Term year.

For each succeeding Term year, the Gross Annual Rate shall be the Gross Annual Rate for the previous Term year increased by a factor of * percent. Any applicable discounts or other adjustments will be applied thereafter to the Annual Rate so derived.

3.     Discounts:

(a)  Continuous Service Discount: A discount of ten percent (10%) in calculating the Periodic Charge shall be allowed for each month in excess of 12 consecutive months that Station is continuously licensed to use the Arbitron Data for this Market, provided that such discount shall no longer apply if Station fails to sign and return this Agreement to Arbitron within 45 days after the termination of a prior Arbitron Radio License Agreement.

(b)  Group Discount: If Station owns two or more radio stations located in different markets and such radio stations are under common ownership as defined by Arbitron, Station may be entitled to a Group Discount based on the number of subscribing radio stations owned at the time this Agreement is executed, which discount may vary and be adjusted during the Term of this Agreement in accordance with Arbitron’s Group Discount Schedule should the number of subscribing commonly owned radio stations change.

(c)  Long-Term Discount: A discount of

         
20 % in months 1-12,     20 % in months 13-24,
20 % in months 25-36,     20 % in months 37-48,
n/a % in months 49-60,     n/a % in months 61-72,
n/a % in months 73-84      

shall be allowed in calculating the Net Annual Rate charged during the applicable months.

4.     Periodic Charge:

The Periodic Charge, due and payable by Station on the first day of each billing period, shall be: (a) the Gross Annual Rate plus any adjustments; (b) less any applicable Continuous Service Discount; (c) less, from the amount thereby derived, any applicable Group Discount; (d) less, from the amount thereby derived, any applicable Long-Term Discount; (e) with such amount prorated equally between the number of payments for the Term year.

In addition to and together with the above payments, Station shall pay to Arbitron any sales, excise, gross-receipts, service, use or other taxes, however designated, now or hereafter imposed upon or required to be collected by Arbitron by any authority having jurisdiction over the Market being surveyed or over any location to which Station directs Arbitron to deliver Data, or by any other taxing jurisdiction, and such obligation shall survive the termination of this Agreement.

5.     Late Payment Charge and Right to Suspend Report Delivery or Terminate Agreement:

A late payment charge of one and one-half percent (1.5%) per month will be charged on all Periodic Charges, as adjusted, which are not paid within 60 days after due hereunder, but in no event will the applicable per-month late payment charge exceed one-twelfth of the maximum annual percentage allowed to be charged by applicable state usury law. Any failure to impose a late payment charge shall not prejudice Arbitron’s right to do so should the default continue or should a subsequent payment not be made when due. In addition, Arbitron may, without terminating, breaching or committing a default under this Agreement: (a) accelerate or modify in any way the payment schedule of Periodic Charges for the duration of this Agreement to a number of installments to be determined by Arbitron in its discretion; and/or (b) suspend delivery to Station of any Data or Report(s), in any form, due under this Agreement until such time as Station is current in its payments of all sums due hereunder; and/or (c) send Station written notice that Station’s license hereunder is suspended, in which case Station further expressly agrees that it thereafter shall not use Arbitron Data and/or Reports previously received by Station until such time as Station becomes current in its payments of all sums due under this Agreement. Arbitron’s suspension hereunder of delivery of Data and/or Reports to Station, of this License, shall not relieve Station of any of its obligations hereunder. Station further agrees to reimburse Arbitron for all collection costs and expenses (including reasonable attorneys’ fees) incurred hereunder. This Agreement may be terminated immediately by Arbitron should Station default in payment of any sum due or should Station default in any other condition or obligation of this Agreement.

6.     Changes in Radio Market Service:

Modification of Rates, Surveys, Report Content or Report Format:

© 1997 The Arbitron Company
KPER-UNI 9/97

   
  DC

Initials here


 

(a)  While Arbitron will use professional research efforts to conduct its surveys and produce its Data in accordance with its Description of Methodology, and the Minimum Standards for Broadcast Rating Research of the Electronic Media Rating Council, Arbitron reserves the right to change at any time the geographical territory comprising the Market, its policies and procedures, survey dates, survey length, survey frequency, sampling procedures, methodology, method of Data delivery, number of printed copies of Reports, Report content, Report titles, Report format, and to cancel surveys and the preparation of Arbitron Data, or any other aspect of the Data services supplied.

Arbitron need not produce any Data or Reports whenever, in its judgment, insufficient data are available to meet its minimum research standards or any event has jeopardized the reliability of the data. In the event that Data and/or Reports are not produced, Station shall receive a credit reflecting the pro rata value of the Net Annual Rate for said Data and/or Report(s). Without limiting the foregoing, Station expressly understands and agrees that Arbitron may, at any time during the Term of this Agreement, reduce the number of surveys conducted and/or Reports published for this Market and consequently reduce the number of Reports provided to Station and that, in the event such reduction occurs, Station is not relieved of any of its obligations under this Agreement.

(b)  In the event that any cause(s) prevents Arbitron from conducting any survey in accordance with its Description of Methodology, schedules or other publications, Arbitron reserves the right to produce abbreviated Report(s). Station hereby consents to publication of such abbreviated Report(s) under such circumstances. In the event that such an abbreviated Report covers a substantially decreased geographic area, or deletes twenty-five percent (25%) or more of the survey days from the aggregate number of days scheduled, Station shall be entitled to either a proportionate refund for the abbreviated Report, or a full refund for the abbreviated Report, or a full refund for the abbreviated Report, upon return of the abbreviated Report within 10 days, at Station’s option. Further, Arbitron reserves the right in its sole discretion to augment available data by means of expanded or extended samples and Station agrees it shall not be entitled to any refund in such event.

(c)  Arbitron may increase the Gross Annual Rate hereunder at any time. If Arbitron increases the Rate for a reason other than as permitted elsewhere in this Agreement, it shall give prior written notice to Station. Station may, within a 30-day period following such notice, cancel the unexpired Term of the Agreement, by written notice pursuant to Section 15(a), without cancellation charge or other cost, effective on the date the new Gross Annual Rate would have become effective. In the absence of such timely cancellation, this Agreement shall continue and the new Gross Annual Rate shall become payable in the month stated in Arbitron’s notice and thereafter.

7.     Permitted Uses and Confidentiality:

Subject to the limitations stated herein, Station agrees to limit its uses of the Arbitron Data and Report(s) to such uses as are necessary in the ordinary course of Station’s broadcasting business for programming and media selling. Station understands and agrees that this use is limited exclusively to the radio station(s) specified in Section 1 of this Agreement and only for the Term of this Agreement. In this connection, Station agrees that the Arbitron Data and Report(s) will only be disclosed:

(a)  directly or through its Station representatives to advertisers, prospective advertisers and their agencies for the purpose of obtaining and retaining advertising accounts; and

(b)  through advertising or other promotional literature.

All such disclosures shall identify Arbitron as the source of the disclosed Arbitron Data and Report(s) and should identify the Market, survey period and type of audience estimate, daypart and survey area and shall state that the Arbitron Data and Report(s) quoted therein are copyrighted by Arbitron and are subject to all limitations and qualifications disclosed in the Data and Report(s) (“Sourcing”).* At all times during the Term of this Agreement and thereafter, Station agrees to keep the Arbitron Data and Report(s) supplied by Arbitron confidential and not to disclose the same except as permitted by this Agreement. Station agrees to use its best efforts to prevent the unauthorized disclosure of Arbitron Data and Report(s) by Station’s employees and/or its radio station(s)’s employees and agents, by its radio station(s)’s representatives, by its advertisers and their advertising agencies, by data processing firms, and by all other persons who obtain the Arbitron Data from Station or its radio station(s)’s employees or agents. For Station or its radio station(s) to divulge any Arbitron Data and/or Report(s) to a nonsubscribing station or to lend and/or give an original copy or any reproduction of any part of any Data and/or Report(s) or any Arbitron estimates or data to any nonsubscriber, not authorized by this Agreement constitutes a breach of this Agreement and an infringement of Arbitron’s copyright.

In the event that a Report listed in Section 1 of this Agreement is delivered after the expiration of the Term of this License Agreement, Licensee’s license to use that Report shall continue under the terms and conditions of this License until the release of the next Survey Report in this Market.

Subject to the following conditions, Station may authorize a third party to process the Arbitron data and estimates licensed hereunder on Station’s behalf. Station understands and agrees that it may do so only on condition: 1) that said third party is a then current Arbitron licensee in good standing who is authorized to process Arbitron data and estimates; and 2) that all restrictions concerning the use of the data and estimates provided under this Agreement shall apply with full force and effect to any data, estimates, reports or other output, in any form, containing or derived from the Arbitron data and estimates, produced by said third party for Station.

8.     Confidentiality of Arbitron Respondents:

Station agrees that it will not try either before, during or after a survey, or in connection with any litigation, to determine or discover the identity or location of any Arbitron survey participant. Station will under no circumstances directly or indirectly attempt to contact any such persons. Station agrees to promptly report to Arbitron any evidence or indication that has come to Station’s attention regarding the identity or location of any such persons. Station agrees to abide by Minimum Standard A9 (or any successor provision concerning confidentiality of survey respondents) of the Electronic Media Rating Council and shall abide by any determination of the Electronic Media Rating Council concerning respondent confidentiality. Station further agrees that Arbitron may enjoin any breach of the above-stated obligations and shall have the right to damages or other remedies (including costs, expenses and reasonable attorneys’ fees) available to it at law or hereunder.

9.     Methodology:

ARBITRON MAKES NO WARRANTIES WHATSOEVER, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY WARRANTY OF


*   Station(s) should refer to current regulations and guidelines of the federal government for further requirements concerning the manner of quoting audience estimates.

KPER-UNI 9/97

   
  DC

Initials here

2


 

MERCHANTABILITY OR FITNESS, CONCERNING:

(A)  DATA GATHERED OR OBTAINED BY ARBITRON FROM ANY SOURCE;

(B)  THE PRESENT OR FUTURE METHODOLOGY EMPLOYED BY ARBITRON IN PRODUCING ARBITRON DATA AND REPORT(S); OR

(C)  THE ARBITRON DATA AND REPORT(S) LICENSED HEREUNDER.

ALL ARBITRON DATA AND REPORT(S) REPRESENT ONLY THE OPINION OF ARBITRON. RELIANCE THEREON AND USE THEREOF BY STATION IS AT STATION’S OWN RISK.

10.     Liabilities and Limitations of Remedies:

THE SOLE AND EXCLUSIVE REMEDY, AT LAW OR IN EQUITY, FOR ARBITRON’S BREACH OF ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY WARRANTY OF MERCHANTABILITY OR FITNESS, AND THE SOLE AND EXCLUSIVE REMEDY FOR ARBITRON’S LIABILITY OF ANY KIND, INCLUDING WITHOUT LIMITATION LIABILITY FOR NEGLIGENCE OR DELAY WITH RESPECT TO THE ARBITRON DATA AND REPORTS AND ALL PERFORMANCE PURSUANT TO THIS AGREEMENT, SHALL BE LIMITED TO A CREDIT (FOR EACH REPORT MATERIALLY AFFECTED BY ANY SUCH BREACH) TO STATION OF AN AMOUNT EQUAL TO THE NET ANNUAL CHARGES PAYABLE HEREUNDER BY STATION DIVIDED BY THE NUMBER OF REPORTS PRODUCED ANNUALLY BY ARBITRON FOR THE MARKET. IN NO EVENT SHALL ARBITRON BE LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES, NOR SHALL IT BE SUBJECT TO INJUNCTIVE RELIEF WITH RESPECT TO THE PUBLICATION OF ANY DATA OR REPORT. STATION UNDERSTANDS THAT THE DATA AND REPORTS EITHER WOULD NOT BE PREPARED OR WOULD BE AVAILABLE ONLY AT A SUBSTANTIALLY INCREASED LICENSE FEE WERE IT NOT FOR THE LIMITATIONS OF LIABILITIES AND REMEDIES AS SET FORTH IN THIS SECTION.

Station agrees that it will notify Arbitron in writing of any alleged defect in any Data or Report within thirty (30) days after Station learns of said alleged defect. In the event that Station does not timely notify Arbitron, then Station waives all rights with regard to said alleged defect. Station further agrees that any action to be brought by it concerning any Data or Report shall be brought not more than one (1) year after such Data or Report was originally published by Arbitron.

In the event that either party commences litigation against the other party and fails to ultimately prevail on the merits of such litigation, the commencing party shall reimburse and indemnify the other party from any and all costs and expenses incurred with respect to such litigation, including reasonable attorneys’ fees; provided, however, that this sentence shall not apply where Arbitron commences litigation pursuant to Sections 5 or 8 of this Agreement. This provision shall survive the termination of this Agreement.

11.     Assignments and Changes in Station Status:

Station may not assign either its rights or obligations under this Agreement without the prior written consent of Arbitron, which consent will not be unreasonably withheld.

Subject to Arbitron’s consent, which consent will not be unreasonably withheld, a successor-in-interest by merger, operation of law, assignment, purchase or otherwise of the entire business of Station shall acquire all rights and be subject to all obligations of such party hereunder. In the event that Arbitron consents to the assignment of this Agreement, Arbitron reserves the right to redetermine the rate to be charged to the assignee. Arbitron shall be entitled to assign any of its rights or obligations under this Agreement, including the right to receive License Charges payable hereunder.

Station acknowledges and agrees that the Charges due and the adjustments and discounts applied hereunder are based on Station’s group ownership status and/or any joint operating agreement with one or more other radio stations and/or Station’s ownership of radio stations in this Market or other Markets. In the event Station conveys any one of its radio stations, Station remains fully obligated for the Charges specified for any radio station covered by the terms of this Agreement. Station may only be released from such obligations upon valid assignment of this Agreement and subject to the terms thereof.

Station agrees that if at any time it changes or has changed its ownership, operating or sales policy, frequency, broadcasting arrangements, group or business relationships of the station(s) licensed under this Agreement, or if it enters or has entered into any management or other business relationship with another radio station in this Market or an adjacent Market, or if it enters or has entered into any joint operating agreement with one or more other radio stations, or if it is or was purchased or controlled by an entity owning or otherwise controlling other radio stations in this Market or an adjacent Market, or if it purchases, or an entity which is in any manner controlled by it purchases, at any time, another radio station in this Market or an adjacent Market, Station and its radio station(s) will report the change and the effective date thereof to Arbitron within thirty (30) days of such change. In the event of such occurrence, Station further agrees that Arbitron may redetermine its Gross Annual Rate for the Data, Reports and Services licensed hereunder, as well as any Supplementary Services, effective the first month following the date of the occurrence. Notwithstanding Station’s failure to notify Arbitron, pursuant to the provisions of this paragraph, Arbitron may redetermine Station’s Gross Annual Rate for all Data, Reports and Services, as well as any Supplementary Services, based on the foregoing, effective the first month following the date of the occurrence.

Station further agrees that if the parent company or other controlling entity of Station, or any entity in any manner related to Station, purchases or otherwise acquires a controlling interest in a radio station in Station’s Market that is not licensed by Arbitron for the same Data and Reports as that licensed hereunder, as well as any Supplementary Services, then Arbitron may redetermine Station’s Gross Annual Rate based on such occurrence as described in this Section 11.

12.     Special Services and Reports:

If, during the Term of this Agreement, Station orders any Special Services or Report(s) not licensed through any other Arbitron Agreement (“Specials”), Station hereby agrees that this Agreement shall be applicable with respect to all such Services with the same force and effect as if printed out at length in a separate agreement executed by Station; provided, however, that any credit required when applying Section 10 to any such services shall be limited to the license fee actually paid for such services.

13.     Ratings Distortion Activity:

(a)  Station agrees that it shall not engage in any activities which are determined by Arbitron to be ratings distortion. Such prohibited activities may include, but are not limited to, activities which could:

     (i)  cause any survey participant to record erroneous listening information in his or her Arbitron diary; or

     (ii)  cause any survey participant to utilize an Arbitron diary for a contest or promotion conducted by Station or its radio station(s).

(b)  Station further agrees that Arbitron may delete all estimates of listening to Station and/or its radio station(s) from any Report, computer tape or other Arbitron service or method of delivery where, in its judgment it has deemed that Station or its radio station(s) has engaged in such activities. Arbitron shall:

     (i)  first give Station and its radio station(s) notice setting forth what activities it deems Station and its radio station(s) has engaged in which allegedly could cause or have caused ratings distortion;

     (ii)  present evidence to substantiate the allegations set forth in (i) above; and

     (iii)  give Station and its radio station(s) reasonable opportunity (in light of Arbitron’s publication schedule for any Report) to present its position both in writing and orally. and

In the event that Station or its radio station(s) is notified by Arbitron

KPER-UNI 9/97

   
  DC

Initials here

3


 

that allegations of ratings distortion have been made against Station or its radio station(s), then Station or its radio station(s) shall submit a written response to Arbitron’s inquiry concerning the allegations within seven (7) days from the receipt of Arbitron’s notice, which time may be shortened by Arbitron for reasons relating to the Report publication schedule. Arbitron shall then advise Station or its radio station(s) of its decision or reason for delay within seven (7) days following its receipt of Station or its radio station(s) written response or oral presentation, whichever is later. All such writings shall be addressed and sent to the respective party by facsimile, overnight courier service, or certified mail with return receipt requested. In the event that estimates of listening to Station and/or its radio station(s) are deleted from a Report(s) (and/or other Arbitron services) following the procedure set forth above, Station and its radio station(s) agree that the only remedy for such deletion shall be a credit of the fee paid by Station for such Report(s) or other affected services and that in no event shall Arbitron be liable for incidental or consequential damages or be subject to injunctive relief with respect to any such deletion of estimates of listening to station and/or its radio station(s). In the event that estimates of listening to Station and/or its radio stations are deleted from a Report pursuant to this Section, Arbitron agrees that it will give Station and its radio station(s) an opportunity to submit to Arbitron a written statement (not exceeding 200 words) of Station and/or its radio station(s) views concerning its alleged activities, with such written statement to be published in the Report subject to such reasonable editing deemed necessary by Arbitron. In addition, Station and its radio station(s) agree to abide by the Arbitron policies and procedures governing various Special Station Activities, including, but not limited to, ratings bias.

14.     Information to be Provided by Station and Its Radio Station(s):

Station and its radio station(s) agree to provide to Arbitron, within ten (10) days of receipt of Arbitron’s request, such information which Arbitron deems necessary for the publication of a Report, including, but not limited to, accurate descriptions of the following information for Station and its radio station(s): (a) facilities; (b) broadcast station names; (c) broadcast hours; (d) simulcast hours; (e) radio frequency; (f) operating power; (g) format; (h) height of antenna above average terrain, and (i) programming schedule and information. Station and its radio station(s) further understand and agree to notify Arbitron of any changes to the above-referenced information. Station and its radio station(s) hereby hold Arbitron harmless and agree to indemnify Arbitron from and against any and all loss, cost or expense (including reasonable attorneys’ fees) arising out of any omission or error in information provided to Arbitron by Station and its radio station(s) pursuant to this Section.

15.     General:

(a)  All notices to either party shall be in writing and shall be directed to the addresses stated hereafter (unless notice of an address change has previously been given).

(b)This Agreement shall be deemed to be an agreement made under, and to be construed and governed by, the laws of the State of New York, exclusive of its choice of law rules. The parties expressly agree that any and all disputes arising out of or concerning this Agreement or the Arbitron Data or Reports licensed hereunder shall be litigated and adjudicated exclusively in State and/or Federal Courts located in either the State of New York or the State of Maryland, at Arbitron’s option, and each party consents to and submits to both such jurisdictions.

(c)  This Agreement constitutes the entire agreement between the parties concerning the subject matter hereof, notwithstanding any previous discussions and understandings; and shall not be deemed to have been modified in whole or in part except by written instruments signed hereafter by officers of all of the parties or other persons to whom the parties have delegated such authority.

(d)  Any litigated question regarding the legality, enforceability or validity of any section or part hereof shall not affect any other section, and if any section or part hereof is ultimately determined illegal, invalid, unconstitutional or unenforceable, that section or part hereof shall be severed from this Agreement and the balance of the Agreement shall thereafter remain in full force and effect for the remainder of the Term.

(e)  See Addendum

16.     Calculation of License Charges:

First Term Year Gross Annual Rate (Combined) $ See Schedule “A”

                     
                Combination Rate
Station ____________________   $ ____________________           [   ]YES   [   ]NO
Station ____________________   $ ____________________           [   ]YES   [   ]NO
Station ____________________   $ ____________________           [   ]YES   [   ]NO
Station ____________________   $ ____________________           [   ]YES   [   ]NO
Station ____________________   $ ____________________           [   ]YES   [   ]NO
Station ____________________   $ ____________________           [   ]YES   [   ]NO
Station ____________________   $ ____________________           [   ]YES   [   ]NO
Station ____________________   $ ____________________           [   ]YES   [   ]NO
Station ____________________   $ ____________________           [   ]YES   [   ]NO
Station ____________________   $ ____________________           [   ]YES   [   ]NO
LESS DISCOUNTS:                    
[   ] Continuous Service (10%):       $   See Schedule “A”        
[   ] Group (at beginning of Term)                    
     [   ]10%     [   ]7.5%     [   ] 5%      [   ]2.5%   $   See Schedule “A”        
[   ] Long-Term Discount:                    
     __% in months 1-12                    
     (see Section 3(c) above)       $   See Schedule “A”        
FIRST TERM YEAR NET ANNUAL RATE:       $   See Schedule “A”        

Station further understands and agrees that the Net Annual Rate payable during any Term year subsequent to the first Term year will vary in accordance with an applicable Group Discount, any other applicable discount, or any adjustment as specified in Sections 2, 3, 4, 6 and 11 of this Agreement


AGREED TO:

CLEAR CHANNEL COMMUNICATIONS, INC.


BROADCASTER (“STATION”)

     See Schedule ‘A’


FOR USE ONLY BY STATION(S)


ADDRESS
     

CIT STATE ZIP

/s/ David Crowl


BY (AUTHORIZED SIGNATURE)
Senior Vice President

NAME (TYPE OR PRINT NAME OF PERSON SIGNING ABOVE)
   
  8/03/01

TITLE DATE


ACCEPTED BY:

/s/ Dolores L. Cody, EVP/Chief Legal Officer


CONTRACT MANAGER

8/06/01


DATE

Arbitron Inc.
9705 Patuxent Woods Drive
Columbia, Maryland 21046-1572

KPER-UNI 9/97

4


 

CLEAR CHANNEL COMMUNICATIONS

LOCAL MARKET REPORT SUMMARY

Attachment “A” to the Station License Agreement to Receive and Use Arbitron
Radio Listening Estimates Dated August 2, 2001

                         
    Total   Total   Total
    LMR GROSS   LMR NET   Metro
    RATE   RATE**   Redefinition
   
 
 
Grand Total Local Market Report:
  $ 191,039,562     $ 124,081,984     $ 423,744  

**Includes Sample Surcharge where applicable                                                  

     
AGREED TO:   ACCEPTED BY:
 
Clear Channel Communications, Inc.   Arbitron Inc.
 
/s/ David Crowl

By Authorized Signature
  /s/ Barry Barth

Contract Manager
 
 

Name (Type or Print Name of Person
Signing Above)
  8/31/01

Date
 
8/23/01        

Title                                                                               Date

 


 

ADDENDUM

     THIS AGREEMENT is an Addendum to the “Station License Agreement to Receive and Use Arbitron Radio Listening Estimates” dated August 2, 2001 between Clear Channel Communications, Inc. (hereinafter referred to as “Clear Channel”) and Arbitron Inc., (hereinafter referred to as “Arbitron”), for a Term commencing January 1, 2001 and ending March 31, 2005 (hereinafter referred to as the “Basic License Agreement”) and an Addendum to “License Agreement to Receive and Use Scarborough Reports”, “The Arbitron Company Supplementary Services (“Specials”) License Agreement”, and “Radio Station License Agreement to Receive and Use Arbitron RetailDirect Service”, where applicable.

        The parties agree as follows:

1.   Arbitron License Agreements for the Local Market Report, Maximiser, Arbitrends and PD Advantage, which expired on either December 31, 2000, or March 31, 2001 are renewed for four years, retroactive to their expiration date. These agreements will be renewed for the first twelve (12) months *. After the first term year, a * escalator will be applied annually to the previous term year rate, which includes the sample surcharge as applicable.
 
    Arbitron License Agreements for Scarborough and RetailDirect, which had Release 2 of 2000 as the last report provided, are renewed for four years, retroactive to their expiration date. These contracts will now have Release 2 of 2004 as the last report provided under the renewal agreements. These agreements will be renewed for the first twelve (12) months * . After the first term year, a * escalator will be applied annually to the previous term year rate. The only exception is the Arbitron License Agreement for Scarborough in Columbus OH, which will not be renewed.
 
    Arbitron License Agreements for Mapmaker, which expired with the Fall 2000 licensed usage period, will be renewed through March 31, 2005 in four-report markets, and through June 30, 2005 in two-report markets, to cover the licensed usage period of all licensed reports up to and including the Fall 2004 Report. These agreements will be renewed for the first twelve (12) months * . After the first term year, a * escalator will be applied annually to the previous term year rate.
 
2.   Existing Arbitron License Agreements for the Local Market Report, Maximiser, Arbitrends and PD Advantage for Clear Channel Radio Stations1 expiring after March 31, 2001, but prior to December 31, 2004, will be renewed at their expiration dates to correspond with the Basic License Agreement end-date at a * increase over * and a * annual rate of escalation. In such instances, the * escalator at the time of expiration and annually shall be calculated on the net rate plus any applicable sample surcharge.
 
    Existing Arbitron License Agreements for Scarborough or RetailDirect for Clear Channel Radio Stations, which do not include all reports up to and including Release 2 2004, will be extended to include all reports up to and including Release 2 2004. These license agreements will be renewed at a * increase over * with a * annual rate of escalation.
 
    Existing Arbitron License Agreements to use Mapmaker for Clear Channel Radio Stations, which expire prior to March 31, 2005 in four-report markets, or prior to June 30, 2005 in two-report markets, will be renewed upon expiration through March 31, 2005 in four-report markets, and through June 30, 2005 in two-report markets. These licenses will be renewed at * increase over * with a * annual rate of escalation.


    1 Reference to Clear Channel Radio Stations is meant to include any radio station owned or otherwise required to be licensed by Clear Channel under Section 11 of the Basic License Agreement.

 


 

3.   All Clear Channel Radio Stations which qualify to be reported in a Local Market Report and as per Section 11 of the Basic License Agreement are required to obtain a license to the Local Market Report shall also obtain a license to Maximiser and Arbitrends (where available). The license fee for Maximiser and Arbitrends will be determined using a formula in Section 6, below. If another Clear Channel Arbitron licensed radio station in the market subscribes to MapMaker, Tapscan, PDAdvantage, Scarborough and/or Retail Direct, such added station(s) will also be required to subscribe to the same service.

    If a radio station which is purchased by Clear Channel during the Term of the Basic License Agreement, or otherwise would be required to be licensed under Section 11 of the Basic License Agreement, and such station is licensed to Tapscan and/or Mapmaker and/or PD Advantage and/or Scarborough and/or RetailDirect and/or Maximiser Qualitative Interface, and the existing Clear Channel Radio Stations in the same market are not licensed to one or more of these services, the existing Clear Channel Radio Stations will not be required to license such service(s). Those radio stations in the market that are not licensed to these services will not be permitted to use the services in any manner.
 
4.   In the event that Clear Channel acquires, or otherwise enters into a relationship with a radio station which is required to be licensed under Section 11 of the Basic License Agreement, and that radio station has a valid Arbitron License Agreement for the Local Market Report and any other service which expires after December 31, 2004, said license agreement will remain in full force and effect until its termination date, *. If such license agreement for the Local Market Report and any other Arbitron services expires prior to December 31, 2004, at the time of such expiration, a * escalator will be applied to *. The term of the license agreement will then be extended to become coterminous with the Basic License Agreement, at a * annual rate of escalation. The * escalator at the time of expiration and annually shall be calculated on the net rate plus any applicable sample surcharge.
 
    Upon written notice to Arbitron, received a minimum of thirty (30) days prior to the expiration date of the Basic License Agreement in a market (i.e. on or before November 30, 2004 in four-report markets, on or before November 30, 2004 in two-report markets where the license agreement for the Local Market Report ends December 31, 2004, or on or before February 28, 2005 in two-report markets where the license agreement for the Local Market Report ends March 31, 2005) and in the case of Scarborough or RetailDirect by November 30, 2004, * . This above right * does not survive expiration or termination of the Basic License Agreement and under no circumstances may be assigned by Clear Channel.*
 
    In lieu of * Clear Channel may extend all of the expired Local Market Report agreements and other Supplementary Services Agreements in any such partial market, to the latest termination date of the Arbitron Local Market Report license agreements in effect in such market or markets under the terms of that agreement.
 
5.   All Clear Channel Radio Stations whose licenses to use the Local Market Report are renewed under the terms of the Basic License Agreement, and which had previously been licensed to use the Fall 2000 Local Market Report, but did not have a license to use Maximiser or Arbitrends (where available) for the Fall 2000 survey period, will be licensed to use these services at * for the Term of the Basic License Agreement.
 
    All Clear Channel Radio Stations which are purchased or required to be licensed under Section 11 of the Basic License Agreement during the term of the Basic License Agreement shall be required to obtain a license to use Maximiser or Arbitrends (where Arbitrends is available). The rate will be determined using a formula which is described below.
 
6.   In the event that Clear Channel acquires, or otherwise enters into a relationship with a radio station which is required to be licensed under Section 11 of the Basic License Agreement,

 


 

    that is not an Arbitron subscriber, Arbitron will utilize the following methods for calculating the rate for the Local Market Report, Maximiser and Arbitrends (where Arbitrends is available):

  A. For stations purchased by Clear Channel, or for which Clear Channel otherwise enters into a relationship in which the station is required to be licensed under Section 11 of the Basic License Agreement, after the execution date of the Basic License Agreement, which at the time of such purchase by Clear Channel, or other relationship which requires a license under Section 11 of the Basic License Agreement, are not Arbitron subscribers and are located in markets where Clear Channel already owns or otherwise has a relationship in which the radio station is required to be licensed under Section 11 of the Basic License Agreement

  The Arbitron Local Market Report, Maximiser and Arbitrends (where Arbitrends is available) rate for radio stations that Clear Channel purchases, or for which Clear Channel otherwise enters into a relationship in which the station is required to be licensed under Section 11 of the Basic License Agreement, after the execution of the Basic License Agreement, will be priced on * .

  After calculating this rate, Arbitron will * . This rate will be the first term year rate for the Local Market Report, Maximiser and Arbitrends (where Arbitrends is available) for the newly-licensed station(s) and this rate will then increase at a * annual rate of escalation.

  B. For radio stations purchased by Clear Channel, or for which Clear Channel otherwise enters into a relationship in which the radio station is required to be licensed under Section 11 of the Basic License Agreement, after the execution of the Basic License Agreement, which at the time of such purchase by Clear Channel, or other relationship which requires a license under Section 11 of the Basic License Agreement, that are not Arbitron subscribers and are located in Arbitron markets where Clear Channel does not own a station or has not otherwise entered into a relationship with a station which would be required to be licensed under Section 11 of the Basic License Agreement

  The Arbitron Local Market Report, Maximiser and Arbitrends (where Arbitrends is available) rate for stations that Clear Channel purchases, or for which otherwise enters into a relationship in which that radio station is required to be licensed under Section 11 of the Basic License Agreement, after the execution date of the Basic License Agreement will be priced based on * .

  *

  That rate will become the first term year rate for the Local Market Report, Maximiser and Arbitrends (where Arbitrends is available) for the newly-licensed station(s), and this rate will then increase at a * annual rate of escalation.

  This formula will not apply to stations acquired, or otherwise required to be licensed under Section 11 of the Basic License Agreement, in newly created Arbitron markets.

  C. The above formulae in subparagraphs A and B of this Section will apply consistently in all cases involving stations that Clear Channel purchases, or that otherwise enters into a relationship which requires the station to be licensed under Section 11 of the Basic License Agreement, after the execution of the Basic License Agreement, that are being added to an existing Arbitron Local Market Report License Agreement, which have not been Arbitron subscribers for twelve (12) months prior to the acquisition date or effective date of any agreement in which the stations were licensed under Section 11 of the Basic License Agreement. Stations that have been Arbitron subscribers within the past twelve (12) months will be licensed at * in effect at the time of expiration of the Basic License Agreement plus * , with a * annual escalator applied in each successive term year.

 


 

7.   If, during the Term of the Basic License Agreement, Clear Channel opts to obtain a license to use Tapscan and/or Mapmaker and/or PD Advantage for all radio stations in the Clear Channel group, Arbitron will offer Clear Channel * for those stations which had not previously subscribed to the service, if the entire group subscribes to that service. This offer does not apply to Scarborough, RetailDirect, Advances, Custom Coverage, Mechanicals, or the Maximiser/Scarborough interface.
 
    If individual Clear Channel Radio Stations opt to obtain a license to use Tapscan and/or Mapmaker and/or PD Advantage, Arbitron will offer those Clear Channel stations *, for the services that the station has not subscribed to previously within the last twelve (12) months. This offer does not apply to Scarborough, RetailDirect, Advances, Custom Coverage, Mechanicals, or the Maximiser/Scarborough interface.
 
    If, by September 1, 2001, Clear Channel opts to obtain a license to use PD Advantage in the following combination of markets, pricing will be as follows:

           A.     *

           B.     *

           C.     *

8.   There will be a special adjustment to Clear Channel’s Local Market Report rate in * . In that market, the expired net rate for the Arbitron Local Market Report is $* . Future net rates will be as follows:

           2001—$*
           2002—$*
           2003—$*
           2004—$*

          All rates for other Arbitron services in * will increase at the annual Clear Channel escalator of *.

9.   Under the Basic License Agreement, County Coverage printed reports will be provided to all Clear Channel radio stations that are licensed to non-metro counties and that do not qualify for reporting in a Local Market Report. This applies to all Clear Channel Radio Stations meeting the aforementioned criteria at the date of execution of the Basic License Agreement, plus the next twenty-five (25) stations meeting the aforementioned criteria that are purchased by Clear Channel, during the Term of the Basic License Agreement. *
 
10.   Subscribing Clear Channel Radio Stations are granted * defined as a license to use data from *, accessed through Maximiser and Nationwide. This includes data from Arbitron markets *.
 
11.   Clear Channel will execute the Arbitron Processor License Agreement to license the use of Arbitron summary level and Nationwide datasets. Such agreement will restrict Clear Channel’s use of such datasets, software or any application developed by Clear Channel or on behalf of Clear Channel exclusively to Clear Channel Radio Stations, Katz Media Group, Premiere Radio Network and Critical Mass Media and only if the aforementioned entities/businesses are licensed by Arbitron to use the estimates and data under a separate license agreement with Arbitron for the summary level data tapes and the Nationwide data tapes and only for as long as Clear Channel has full ownership and control of such entities/businesses.
 
12.   Arbitron will provide Clear Channel with * Regional Maximiser databases for the Spring 2001 survey, and * Regional Maximiser databases for the Fall 2001 survey. Clear Channel must provide Arbitron with the geographies to be produced. Selected geographies must not exceed the number of counties that are within the limits of Arbitron’s existing production system.

 


 

    Effective Spring 2002 (Fall 2001, if available), these regional databases will be replaced with the National Respondent Level database, accessible through Maximiser. The National Respondent Level database will be produced in Spring and Fall. Under the Basic License Agreement, the license to the National Respondent Level database will include the National Respondent Level database for Spring and Fall 2002, Spring and Fall 2003, and Spring and Fall 2004. Prior to each release of the National Respondent Level database by Arbitron, all Clear Channel Radio Stations that are licensed to use the Local Market Report are required to obtain a license to use Maximiser in order for Clear Channel to receive the right to use the National Respondent Level database.
 
13.   Clear Channel Radio Stations are licensed to the Nationwide Database as a part of the Basic License Agreement. The following surveys will be included: Spring and Fall 2001, Spring and Fall 2002, Spring and Fall 2003, Spring and Fall 2004.
 
14.   The license to use the Maximiser Regional Databases, National Respondent Level Database (accessible through Maximiser), Summary Level Dataset, and Nationwide Dataset are limited to the use of Clear Channel Radio Stations. Any other entity of Clear Channel (including networks, rep firms, traffic/commuter services, consultants) must have its own Arbitron license agreement to access this data.
 
15.   The following stations have been acquired by Clear Channel, or are otherwise required to be licensed under Section 11 of the Basic License Agreement, and are not yet licensed for the Local Market Report, Maximiser, and Arbitrends (where available). Each of these stations will be licensed for the Local Market Report, Maximiser and Arbitrends (where available) and any other applicable services for the Spring 2001 survey, at rates determined per the formulas set forth in Section 6 of this Agreement.

            Albuquerque/KBQI-FM
            Amarillo/KATP-FM
            Atlanta/WLDA-FM
            Augusta ME/WRKD-AM, WMCM-FM
            Colorado Springs/KMOM-FM
            Fargo/KULW-FM
            Lexington/WMKJ-FM
            Los Angeles/KVVS-FM
            Utica/WOWB-FM, WOWZ-FM, WLFH-AM
            Winchester/WAZR-FM

16.   In markets where Clear Channel currently subscribes to Tapscan, any Clear Channel Radio Station/Stations in that market which share a sales staff with a Tapscan subscribing station, but do not subscribe to Tapscan themselves, must become licensed to use the same Tapscan services as the co-owned station/stations, or station/stations required to be licensed under Section 11 of the Basic License Agreement, with which it shares a sales staff, effective January 1, 2002.
 
17.   In the event that Clear Channel enters into a Local Marketing Agreement or other joint operating agreement, management, control or business relationship with the owner of another radio station(s) and such agreement terminates prior to the end of Clear Channel Communications, Inc.’s Arbitron’s License Agreement, Arbitron agrees to terminate the Arbitron license for the aforementioned station(s), and Clear Channel Communications, Inc. agrees to:

  a. Notify Arbitron in writing within ten (10) days of the termination of such business relationship agreement;

  b. Complete payment of any survey already received by the aforementioned station under the Arbitron License Agreement as well as any other related charges for other services. Clear Channel Communications, Inc. shall remain fully obligated under its Arbitron License Agreement.

  c. Should Clear Channel Communications, Inc. or a subsidiary purchase station, the station’s current gross/net rates for Arbitron services will become a fixed part of the Clear Channel Communications, Inc.’s Arbitron License Agreement.

 


 

18.   Section 15 of the “Station License Agreement to Receive and Use Arbitron Radio Listening Estimates” is hereby amended as follows:
 
    Subsection (e): Delete in its entirety and replace with “In the event that Arbitron replaces the diary service in any individual market with electronic media measurement as the sole form of audience measurement, either party may terminate the Basic License Agreement for the market or markets so affected with sixty (60) days written notice prior to implementation of such new technology as the sole form of audience measurement in the affected market or markets.”
 
19.   Section 4 of “The Arbitron Company Supplementary Services (“Specials”) License Agreement” shall not apply to Maximiser and Arbitrends and the following shall apply to Maximiser and Arbitrends: “In the event that Arbitron replaces the diary service in any individual market with electronic media measurement as the sole form of audience measurement, either party may terminate the Basic License Agreement for the market or markets so affected with sixty (60) days written notice prior to implementation of such new technology as the sole form of audience measurement in the affected market or markets.”

     All other terms and conditions of the Basic License Agreement shall remain in full force and effect.

     
AGREED TO:   ACCEPTED BY:
 
 
Broadcaster:

 
  By: /s/ Barry Barth

Contract Manager
 
Station:

 
             
 
Address:

  Date: 9/14/01

 
By: /s/ David Crowl



      (print or type above signature)
  ARBITRON INC.
9705 Patuxent Woods Drive
Columbia, Maryland 21046
 
Title: Senior Vice President

   
 
Date: 9/10/01

   

  GRAPHIC 4 w54680arbitrl4.gif GRAPHIC begin 644 w54680arbitrl4.gif M1TE&.#EAB@`/`+,``/____KZ^O3T].KJZMK:VL'!P:JJJH.#@V-C8T%!020D M)!P<'!(2$@D)"00$!````"P`````B@`/```$_Q#(2<%Y^*E19\H@B`@4T829 M@Q#5]SB$@`0)7E3$$@Q@\2OCH!'11R$Y6?)#`UQ)Z5`D"*H)DO_$9!B"*`<#*7\P;*2PYU\ZD2H%&''PD,N)!PT(E+&A MIH^T4R00/LJQLF20/&IR*&@SC4D"J#:8%;MS?72E6'TQ1'-C!12&G'4S-#A0 MH'%C`Z8>1',TQC'!02PA;0N@*H,4P&/EML#@@+%C-1LDE$',,?("`04BEVWZ MXI(5CG'%4@`<6_#3WC62I1P\>BL!UT&Y:$1XLQ,%*#3G4DN>FE2E?4"*2 M[X'NYU<#,O-,[-2!\^@C@B@05@_0"NTI9/>Y*(']^_;C#BET%WR(_B`](I!T M?(5\]4A-9M4`$$SKI!1=.0)^X@)Q6.C@B5$Y_$/;@$F)-H$ZJ=6QAP(W?=1. M9#!0)=(_4"A@SD\CG5A8:X*QD(9("["@CE0#A2#5'@[PR-$,WX7SR`$8HK"7 <)^H4"2)U"18I@5]HV$8#`PF@Q!]><\E&700`.S\_ ` end -----END PRIVACY-ENHANCED MESSAGE-----